Euro rallies most in week as Cyprus-led contagion concern fades

The euro gained the most this week versus the dollar as falling Spanish and Italian government bond yields signaled Cyprus’s banking crisis may be contained.

Japan’s currency strengthened as the Bank of Japan reiterated its monetary-stimulus options, damping speculation for additional novel measures to boost the economy. Europe’s common currency rose from a four-month low to the dollar as Cyprus’s banks opened, with rules curbing access to cash. Mexico’s peso has been the best performer against the dollar among its 16 major peers this month and this quarter.

“There’s definitely a little bit of a relief bounce going on related to Cyprus,” Brad Bechtel, managing director at Faros Trading LLC in Stamford, Connecticut, said in a telephone interview. “There’s a good amount of month-end related activity, as well. People are comfortable to stay a little short euro. They’re still skeptical that we’re going to get a bounce just yet, but they’re getting more concerned about it.”

The 17-nation euro rose 0.4% to $1.2828 at 2:51 p.m. New York time. It touched $1.2751 yesterday, the least since Nov. 21. The yen gained 0.4% to 94.08 per dollar. Japan’s currency was little changed at 120.67 per euro.

Peso Strength

Mexico’s peso has gained 3.5% to the greenback in the past month, while South Korea’s won has declined 2.7%. This quarter, the Mexican currency has rallied 4.1% and South Africa’s rand has depreciated 8.1%.

The rand today gained the most in two weeks as the nation’s trade deficit narrowed in February from a record in the previous month. South Africa’s currency rose 0.5% to 9.2157 per dollar.

The Australian dollar fell for a second day against Japan’s currency as Italy’s inability to form a government and Cyprus’s bailout damped demand for riskier assets. The so-called Aussie fell 0.7% to 97.96 yen.

The European Central Bank is scheduled to make its next policy announcement on April 4. The central bank has held its benchmark interest-rate at 0.75% since July.

The Central Bank of Cyprus’s capital controls will include a 300-euro ($384) daily limit on withdrawals and restrictions on transfers to accounts outside the country. Banks opened at midday. They will close at 6 p.m. local time, Yiangos Dimitriou, head of the central bank’s audit department, said yesterday in comments broadcast on state-run CyBC television.